March 11. US stock market “day of rage”?

–Moody’s downgrade of Spain was the opening catalyst for a move to higher bonds and lower stocks, but late news that Saudis had opened fire on protesters sparked an immediate 5 bp rally in green euro$ pack.  Ten year yield fell another 8 bps on the day to 3.39%.  Five year note is approaching 2%.  One year euro$ calendars fell further, with EDZ11/Z12 down 6 to 120.5, down 12 in 2 days. There was a buyer of about 8k TY2H 119.5c for 7 early…nice trade as the contract blew through the strike.  (weekly treasury options).  SPM fell through 55 day moving avg.
–The market is clearly worried about the prospect of spreading Mideast unrest, with treasuries acting as the immediate safe haven.  There are protests occurring in Saudi Arabia today…whether the outcome is peaceful or not, the ten year note will likely maintain a bid into the weekend.
–Another terrible earthquake, this time in Japan, which caused a tsunami.  In the 1980’s whenever there was a large US natural disaster bonds would immediately sell off as insurance companies were thought to have to sell bonds to pay claims. In this case I suppose the Japanese govt is the ultimate insurer, with an already large overhang of outstanding bonds.
–Household net worth jumped over $2 T according to Fed’s flow of funds report, nearly all due to stocks.  At the same time, the household sector continued to deleverage…good news, but it does seem to reflect an inordinate dependency on equities, which are mostly held by a small % of the population, and underlines the fact that the US hasn’t really changed from a paper asset economy in spite of the (last) crisis.   The latest reaction to oil price increases similarly shows that the US hasn’t changed much regarding preferences for SUV’s, and the thought that cheap energy is a right.  It’s going to take a lot more paper stocks to buy that oil going forward.
–Retail Sales today expected +1.0% and +0.7% excluding the Chevy Volt.

Posted on March 11, 2011 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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